Celadon Acknowledges Active SEC Investigation
Celadon Group Inc. offered new information into its financial situation while confirming it is under a Securities and Exchange Commission investigation into the value of used trucks donated to a joint venture company.
The admission came Oct. 2 when Celadon acknowledged it wouldn’t issue any audited financial reports before the end of this year, citing an SEC subpoena.
This spring, a short seller painted a bleak picture of Celadon’s balance sheet, charging that its book value was artificially inflated and kick-starting a shakeup in the corporate leadership.
Paul Will was removed as CEO and replaced by Paul Svindland.
Jon Russell, son of founder Steve Russell, was promoted to chief operating officer, and Douglas Schmidt was appointed president of Celadon Trucking.
In May, Celadon’s auditor, BKD, pulled its support of financial statements dating to June 30, 2016, due to uncertainty around the market value of used trucks transferred to 19th Capital Group, a joint venture between Celadon and Element Fleet Management. That joint venture holds more than 10,000 tractors, leasing them to trucking fleets. On the balance sheet, Celadon records the transfer as a shift from “revenue equipment held for sale” to “investment in unconsolidated companies.”
The disagreement is whether the market value assigned to hundreds of trucks — $45 million and $29 million in recent quarters — was too high.
Svindland, who succeeded Will in July, is charged with instituting corrective measures and returning the company to profitability.
“Over the past two months, Celadon has adopted a new strategic plan and is moving rapidly toward implementation,” he said. “The primary components of our plan include strengthening our capital structure, exiting or downsizing unprofitable or noncore business, restoring the historical operating practices and profitability of our irregular route truckload business and augmenting our senior management team and board of directors with world-class talent.
“We are making significant progress toward our goals while acknowledging our financial results will be uneven during this time.”
Celadon also announced that the average revenue per seated tractor per week (excluding fuel surcharge revenue) in the irregular route business increased to $3,069 in August from $2,652 in April. Total truck count also decreased about 200 tractors, or 7%, between April and August, and by approximately another 200 tractors in September. Celadon sold the assets in its flatbed division to PS Logistics in Birmingham, Ala., in mid-September.
“Over the past several years, the fleet size grew too rapidly, and our traffic lanes became too diffuse in our Celadon Truckload Services subsidiary (“CTSI”), the largest irregular route component of our business. Our plan includes rationalizing the fleet size and improving our asset productivity,” Svindland said.
Nevertheless, a group of lenders led by Bank of America agreed to an amendment to extend credit to Celadon until December 2018, avoiding a default on financial terms and conditions through the end of this year. As part of the deal, Celadon must report more frequently to the lenders on its refinancing plan in October and November.
Celadon also secured a $22.6 million equipment term loan using existing tractors and trailers in its Hyndman subsidiary. Proceeds were used to reduce the outstanding balance on the credit line and create liquidity during the refinancing process.
“The refinancing effort is underway and has received significant initial interest, while our major equipment lessors have been supportive as well,” Svindland said. “We expect to identify lead investors and a proposed capital structure in November, with a closing targeted for the second half of December. We appreciate the support of our revolving lenders and our existing tractor and trailer lessors during this process.”
The Indianapolis carrier's stock plunged 11.1% to $6 by the end of trading Oct. 2, the day of the announcement.
Celadon ranks No. 33 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.